Re: Economic survey: no economic target achieved in 2011-12
GDP: Total goods and services produced within country over financial year (it is good estimate of country’s economy’s worth). This figure is measured by countries own financial institutions in local currency using different estimated/real data of the country that they receive from various sources.
GDP is of two types. They are GDP at market price and GDP at constant price. GFP growth rate of a country is real percentage increase in GDP at constant price over last financial year GDP at constant price.
Anyhow, quoted GDP are GDP in current price, and they are usually quoted in dollars (One should remember that whatever currency GDP are quoted, they are always converted figure of measured GDP by local statistical department in local currency). Two types of GDP are quoted.
1: Nominal GDP
2: GDP using purchasing power parity.
Nominal GDP is GDP in current price divided by average exchange rate over the FY (financial year). Some time exchange rate is taken as average exchange rate over last 3 years (I think World Bank uses this method).
World Bank and other world institutions also work out purchasing power of American dollars in various countries. That means, what American dollars are needed to buy goods and services in other countries with respect to cost in USA. For instance, if one dollar in Pakistan can buy three dollars worth of goods and services in USA then nominal GDP is multiplied by 3 to give GDP in purchasing power parity.
Pakistan nominal GDP for various financial years of this government is:
FY 2008-09: Rs 12110 bn
FY 2009-10: Rs 14033 bn
FY 2010-11: Rs 17092 bn
FY 2011-12: Rs 19436 bn (Provincial figure)
Now it is up to institutions to divide this GDP using whatever exchange rate to get GDP in dollars.
Your figure of 176 billion dollars seems GDP of Pakistan for year 2008-09. For same year, it is possible that calculated dollar PPP for Pakistan was one dollar in Pakistan = 2.77 dollars in USA, that means GDP (in PPP) = 488 bn dollars (or $176 bn multiplied by 2.77). I hope you got the answer of your question, and if not, please ask.
Pakistan debt and debt to GDP ratio:
Pakistan total debt is roughly Rs 12024 billion (end of May 2012):
Domestic debt ~ Rs 7200 billion
External debt ~ Rs 4800 billion
Debt to GDP ratio = 62 percent
[Note: Pakistan external debt was ~ $61 billion at the end of Dec 2011. Thus, actual debt is much higher than above figure but since external debt is converted into rupee debt using exchange rate below $ = Rs 80, debt shows lower value (as today, $ = Rs 93). This happens when rupee is devaluing fast].
Anyhow, taking actual debt of Rs 12873 billion as debt, that comes to ~66 percent of GDP if provincial figure of GDP = Rs 19436 bn is taken.
For instance, in July 2008:
Pakistan total debt was roughly Rs 6000 billion
Domestic debt ~ Rs 3200 billion
External debt ~ Rs 2800 billion (~ $44 billion)
Effect of increase in debt … debt to GDP ratio, Interest rate and debt servicing:
Increase in debt is bad news. In Nov 2007 debt was 52 percent of GDP. Though 2012 figure is still better than 1999 when debt was over 90 percent of GDP.
In 1999 Pakistan was paying ~50 percent of revenue as interest. In 2007 Pakistan was paying below 25 percent of revenue as interest.
Increase in debt increases debt servicing cost. That means less revenue left for other expenses, subsidies, and country’s development, thus making life of ordinary citizen miserable as there would be nothing left in treasury to improve their life.
Anyhow, worse than that happens. It is obvious that once government starts borrowing more than economical growth rate, debt to GDP ratio starts increasing resulting in higher debt servicing and more misery for people.
Situation does not end there. Increasing debt means government is borrowing in big way. To borrow government has to go to public for money that increases the demand for money in the country. This increase in demand increases interest rate and that means debt servicing further increasing. Pakistan government interest rate throughout 1990s was over 15 percent, but in late 1990s it went as high as 19 percent. During Musharraf time when debt was not increasing, interest got reduced to below 10 percent. Today, interest rate has again started increasing and is near to 15 percent.
Borrowing also increases inflation and that means price of goods and services also start increasing in big way. This further makes life of people miserable. Average inflation in 1990s was 12 percent or over. It got reduced to around 5 percent on average during Musharraf period. Today, it is again above 12 percent.
Increasing inflation devalues the currency (rupee) and that devaluation means further increase in external debt as well as external debt servicing (as revenue of country is in rupee and debt servicing in dollars). This also further makes life of people miserable.
[In 1988 (when thug politicians came into power) exchange rate was ~ Rs 18 to a dollar. In following 11 years, exchange rate in open market increased to over Rs 60 to a dollar. From 1999 to 2008, exchange rate stayed around Rs 60 to a dollar and then started increasing once thug politicians came to power again. In 4 years since 2008, that is today, a dollar is worth Rs 93.]
If debt increases to level what it was in 1999 for Pakistan, than international institutions stop trusting the government and stop giving loan. Because of that Pakistan started taking high interest short term loans. In 1990s, Pakistan was paying on average over 12 percent interests on dollar debt. Actually, in 1999 Pakistan debt notes in western markets were trading at 50 percent discount yielding over 25 percent interest a year in dollars.
Result means bankruptcy. Pakistan twice defaulted on debt (gone bankrupt) during last Nawaz government. First time Pakistan gone bankrupt was at the end of 1998 and then again Pakistan went bankrupt at the beginning of 1999. USA bailed Pakistan out through IMF and other financial institutions in early 1999. Result of those bankruptcies was Pakistani rupee devaluation in big way.
A situation can come when just to fulfil expenses government further borrows more than GDP growth and thus revenue growth, resulting in higher debt servicing making life of people in the country more miserable (as there would be nothing left to improve their life or create jobs for them).
Increasing government debt pushes the interest rate in country up (due to increase demand of money die to government borrowing), that create increase in money in economy, and that causes high inflation especially when those borrowing is used unproductively. This is what happening in Pakistan.
Anyhow, in such situation, people who have means (and all who are rich have means), they move their liquid cash abroad so that their money can keep its value. This flight of capital means no or very little investment in the country, means no development and no job creation. All this hurts the country, makes the country poorer, and makes people in the country suffer and become more miserable.
GDP to tax ratio:
Pakistan GDP to tax ratio is ~10 percent but it is very unlikely to increase. Pakistan has plenty of loopholes in tax system as well as large population not paying tax. There is no income-tax on agriculture (one of the biggest economical sector in Pakistan) and that means ~60 percent of the population whose income is from agriculture do not pay tax legally.
As for industrialists, many are feudal landlords too, so they have legal loopholes of not paying tax, as they decide to show all their income from agriculture and no income from industry (even when they are having huge industrial income).
In my opinion, anyone who can avoid tax should not pay tax in Pakistan. When Pakistanis who rule the country do not pay tax then why those who get ruled pay tax?
Here is way to not pay tax. If any Pakistani is earning less than Rs 400000 a year (Rs33333 a month) they are not liable for tax anyhow. If they are earning higher than Rs 400000 a year then they should buy couple of acres agricultural land and declare that all their income above Rs 400000 a year is coming from agriculture (regardless they earn from agriculture or not), and in this way they would not need to pay any tax.
I know that not paying tax would be destructive for country, but then, nothing is more destructive than to get ruled by non-tax paying parasites, so it is better to enjoy what one earns in whatever way then to pay tax so that these parasites can rule the country and live in luxury.